Tariff uncertainty casts a shadow on a moderate recovery in electronics equipment shipments
Most segments of the electronics equipment market should see low single-digit growth in 2025, with global shipments of smartphones, PCs, servers and televisions expected to grow by 2%, 2%, 5%, and 1%, respectively. Risks are tilted to the downside, however, and could send volume growth into negative territory. A negative outcome from US–China tensions on trade terms that lead to higher tariffs could translate into significantly higher operating costs, resulting in lower demand and reduced profitability for consumer electronics companies, and exacerbate a global environment of moderate consumer spending growth.
Most product categories in the electronics equipment segment are now very mature, with global TV, computer, and smartphone sales peaking in 2011, 2013, and 2016, respectively. Sales are predominantly driven by replacement purchases for existing equipment, and to a lesser extent, by first-time purchases in emerging economies. Limited volume growth has translated into fierce competition for market shares over the past decade, with Chinese challengers often displacing former Japanese, European, and American leaders.
To escape price-based competition and charge higher prices, companies continue to innovate by introducing new devices featuring improved hardware (connectivity, screen resolution, processing power, energy efficiency, etc.), greater incorporation of additional services (such as content subscriptions), as well as software and user-interface improvements. AI-powered devices have so far had no material impact on hardware replacement cycles given continued consumer skepticism regarding the additional functionalities offered by the technology.
Semiconductors: a fast-paced but uneven growth cycle
Global semiconductor sales will exceed the USD?700?billion mark for the first time in 2025 (+11%), according to the industry data firm WSTS. Sales are being primarily driven by higher prices in critical segments (memory chips), reflecting a tight supply–demand balance and an improved product mix, with more chips using TSMC’s and Samsung’s latest technologies hitting the market. The current cycle is by far driven by soaring demand for expensive chips powering the AI infrastructure boom, with sales in the Americas (+45% in 2024) and Asia-Pacific (+16%) regions capturing the bulk of growth. Because they are more reliant on demand for high-volume, low-price chips typical of final markets such as industry and automotive, Japan (flat sales in 2024) and Europe (–8%) should continue to experience subdued demand in 2025. A symptom of this two-speed pace in the industry, many semiconductor companies have not yet emerged from the 2022–2023 semiconductor recession and will only see moderate growth in 2025. The situation in automotive and industrial semiconductors is even more worrying given that global capacities are expanding fast, with China leading the pack.
The current AI-driven semiconductor cycle harbours significant risks regardless of whether AI ultimately proves to be a success or a disappointment. If AI fails to deliver profitable applications, the massive investments made across the semiconductor value chain could unravel quickly, triggering a deep and prolonged downturn in the industry. On the other hand, if AI succeeds and demand surges, it could overwhelm existing manufacturing capacities, leading to renewed chip shortages that could disrupt a wide range of industries. In both scenarios, the volatility and scale of AI-related investments make the cycle particularly precarious for global supply chains and economic stability.
Geopolitical risk is another factor that has been gaining traction in recent months, with US–China rivalry progressively reshaping global trade flows. The imposition of export controls, blacklists, and licencing requirements has created new chokepoints in critical areas such as AI-grade memory and manufacturing equipment, which is increasing the likelihood of supply disruptions. At the same time, US semiconductor companies face shrinking market opportunities, with some deriving up to half of their revenues from China. The growing pressure to comply with geopolitical regulations also exposes smaller firms to significant financial and operational risks. Moreover, the divergence of standards and trade policies between the US and China - and even within the US-aligned bloc - adds further complexity and cost, potentially leading to fragmentation and strategic realignment among key players such as Taiwan, Japan, South Korea and Europe.
IT services and software: labour constraints are hampering growth and driving up costs
The IT services and software sector comprises the sub-segments of consulting, programming, data processing, managed services and software, collectively generating worldwide sales of USD 2,600 billion. With average annual growth of almost 9% over the past decade, the sector’s robustness stems from the use of information and communication technologies by companies and public authorities to improve their efficiency.
Essentially made up of national and regional markets, like most service activities, the sector is nevertheless experiencing increasing internationalisation in the software, managed services, programming and data processing segments. Over the past decade, IT service exports from India and the US, for example, have more than doubled, and now account for over USD 150 billion a year. After big data, cloud computing and cybersecurity, companies in the sector are now focusing on the deployment of artificial intelligence technologies to further accelerate their growth.
Meeting growing demand is the main challenge facing companies in this sector, where labour is both the main cost item (between 50% and 75% of sales, depending on the segment) and the main source of competitiveness. In recent years, a shortage of qualified profiles has weighed on companies' ability to meet demand, thereby driving up wage costs. The sector must also contend with the growing demands of regulatory authorities, particularly in terms of data collection, hosting and security (General Data Protection Regulation in the European Union), and the control of illegal or misleading content (Digital Services Regulation).
Telecommunications: usage explodes while sales stagnate
The telecommunications sector generates annual worldwide sales of around USD 1,400 billion. Telecoms markets are national, oligopolistic and most often dominated by a former state monopoly. International groups are the exception and most of them have significantly reduced their activities outside their home countries and regions in recent years in the absence of economies of scale or sufficient synergies.
Driven by the rapid development of fixed and mobile networks in developed economies between 1995 and 2015, the sector is now largely mature and profitability depends on the size and degree of concentration of domestic markets. In this respect, US operators benefit from a market that is both vast (330 million inhabitants) and concentrated (Verizon, AT&T and T-Mobile hold over 90% of the market), enabling high margins. In contrast, European markets remain national and more fragmented, and are therefore comparatively less profitable.
In emerging countries, the deployment of mobile telecoms continues to sustain low-reward growth due to comparatively low average revenue per user (ARPU). The number of mobile and fixed broadband subscriptions worldwide is expected to grow by 1% and 3% per year, respectively, over the next five years. After a decade of almost zero growth, the sector's sales are likely to increase only marginally during the same period.
Telecommunications usage, however, continues to grow at a steady pace thanks to the deployment of faster and more extensive fixed (fibre optic) and mobile (5G) networks. Data volumes exchanged on mobile and fixed networks worldwide are expected to grow by 20% and 12%, respectively, per year over the next five years. The challenge for telecoms operators is to monetise this improvement in service quality with consumers who are opportunistic and price-conscious (in developed countries) or budget-constrained (in emerging countries).
In the absence of sustained business growth, telecom operators will be relying on cost-cutting to boost profits. In Europe, many operators have been gradually withdrawing from their mobile network management activities through the creation of tower companies, whose capital they have often opened up. Outsourcing these activities meets the dual need to reduce the sector's very high capital intensity (capex equivalent to 15-20% of sales) and to raise funds to reduce high debt levels. A swathe of mergers and acquisitions and share buyback programmes have taken place as a result of major investments in network infrastructures.
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